February 20, 2014 / 4:43 PM / 4 years ago

EXCLUSIVE-BNSF to take bids to buy up to 5,000 safer oil railcars

(Adds details on crude-by-rail growth, safety standards, crashes, share movement, second byline and dateline)

By Kristen Hays and Cezary Podkul

HOUSTON/NEW YORK, Feb 20 (Reuters) - BNSF Railway Co plans to buy its own fleet of up to 5,000 new crude oil tank cars with safety features that exceed the latest industry standards, the unit of investor Warren Buffett’s Berkshire Hathaway Inc said on Thursday.

The unusual step is intended to further the industry’s push for safer movement of crude by rail in light of several accidents in recent months, including one involving a BNSF train in North Dakota last December.

The company, a major mover of crude by rail throughout the United States, plans to seek bids from railcar makers for up to 5,000 new tank cars with thicker walls and ends, increased protection of safety and pressure valves, and other safety features exceeding industry standards adopted two years ago.

The news sent shares of several railcar manufacturers higher.

BNSF’s plan is atypical for a railroad, which generally owns only the tracks and locomotives that pull trains. Railcars are usually owned by companies that lease them to others that rely on rail transport such as refiners Phillips 66 and PBF Energy Inc, which also buy their own cars.

The December crash of a BNSF crude train in North Dakota involved railcars that do not meet industry safety standards, according to investigators. The train collided with a derailed grain train, setting off fires that burned for more than a day. No one was hurt.

Crude-carrying tank cars built after October 2011 are based on stronger design standards recommended by the Association of American Railroads trade group. That design features stronger hulls and reinforced valves less likely to puncture or leak in a derailment.

The U.S. Transportation Department’s Pipeline and Hazardous Materials Safety Administration is considering new rules for safer tank cars as crude transport via rail surges in tandem with the booming onshore oil production in the United States and Canada.

Last week, Canadian National Railway Co and Canadian Pacific Railway Ltd said they would charge higher rates for customers that move crude in railcars built before October 2011, which the National Transportation Safety Board said in 2009 were unsafe.

BNSF declined to comment on possible pricing to shippers opting to use the railroad’s tank cars once they are built, saying such information is proprietary. Other U.S. railroads also declined to comment last week on the Canadian railroads’ decision to charge shippers more for using older tank cars.

But BNSF’s plan to move into tank car ownership and the Canadian railroads’ pricing decisions to push shippers to use newer railcars all came before U.S. regulators have issued any new safety standards.

BNSF did not identify railcar makers that it will invite to bid, but those manufacturers in the United States include Trinity Industries Inc, American Railcar Industries Inc and Greenbrier Cos Inc.

Shares of American Railcar were up more than 11 percent in late-morning trading, while Trinity jumped more than 9 percent, and Greenbrier rose nearly 6 percent.


Rapid proliferation of moving oil by train started more than three years ago, with shipments surpassing 780,000 barrels a day in 2013 - a 71 percent jump from 2012, according to AAR.

The growth resulted from a lack of pipeline infrastructure to move burgeoning inland output to refining markets, particularly on the U.S. West and East coasts, where refiners were otherwise highly dependent on more-expensive imports.

Refiners with coastal plants have heavily embraced oil by train, building offloading facilities to receive it. BNSF moves more crude from North Dakota’s Bakken shale than its peers.

However, crude via rail is under intense scrutiny from regulators after multiple crashes, particularly those that involved pre-October 2011 older railcars without reinforcements.

AAR in November issued stronger recommendations, including the addition of reclosing high-pressure relief valves, metal jackets and full-height head shields.

The Railway Supply Institute, a lobbying group that represents tank car manufacturers, last week proposed requirements that are essentially the same as AAR‘s. ID:nL2N0L50YF]

The worst oil-by-rail accident happened last July when a runaway Montreal Maine & Atlantic Railway train carrying Bakken crude crashed in a small Quebec town, causing explosions and fires that killed 47 people and obliterated half of the main downtown strip. Other accidents that did not cause deaths followed. (Additional reporting by Joshua Schneyer in New York; Editing by Terry Wade and Lisa Von Ahn)

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